What is accounting rate of return? What is ARR Formula?

 

What is ARR?

Measure of an investment’s profitability.

A project is accepted if ARR > target average return.
ARR = average net profit / average book value

Where:
average net profit is total profit over 'n' years divide by 'n'
average book value is (initial investment + salvage value)/2 

What is payback period?
What is the advantages or disadvantages of ARR?
What are the other methods of project evaluation?